The head of impact at SNIB discusses the motivations for setting up a development bank dedicated to directing capital to respond to Scotland’s economic, social and environmental challenges.
Sandy MacDonald, executive director and head of impact for the Scottish National Investment Bank (SNIB), Scotland’s domestically-focused development finance institution, starts our conversation explaining the origins of the organisation.
In 2017, the former Council of Economic Advisers (CEA) gave the Scottish Government advice on the need for a development bank to solve what he describes as “some of the long-term structural challenges in Scotland”.
“Front of mind were environmental and economic challenges such as the transition to a net-zero economy and the productivity deficit we have in the country,” he says.
The Scottish National Investment Bank Act of 2020 turned that recommendation into reality and shortly after, the Scottish government committed to capitalising the bank with £2bn (€2.3bn) over 10 years. Importantly, MacDonald notes, the bank was launched with cross-party support which remains crucial to its stability today.
“We are also operationally independent from the government, which is equally important if we want to crowd in money from other people,” he adds.
SNIB was set three challenges by the Scottish government centred around tackling the climate emergency, place-based inequality and demographic pressures on the economy, mainly driven by Scotland’s ageing population, and very early into its existence, the bank’s board decided that it would deliver on its objectives by investing through impact.
“Impact investing provided a very clear structure for how we could measure the difference we would make, to report back to government and to target our investment strategy,” says MacDonald.
Mission-aligned investments
The challenges set by the Scottish government were translated into three missions: to address the climate crisis through growing a fair and sustainable economy; to transform communities, making them places where everyone thrives; and to scale up innovation and technology for a more competitive and productive economy.
“If I look at the mission objectives and the theory of change today, I think we have learnt a lot over the last five years about how you go about investing in order to drive change,” says MacDonald giving the example of the net-zero transition, which he says went from a very generic desire to invest into companies that enabled the transition, to developing a more detailed understanding of specific sectors and needs.
“When you examine the theory of change we’ve developed for offshore wind, for example, it contains an enormous amount of detail, including how to catalyse growth of the sector looking at different levels within the supply chain and the redevelopment of sites,” he says.
Another key focus for the bank is housing. MacDonald says that to address the extensive place-based inequalities that exist across Scotland requires “looking at the bigger picture”.
“If you want to drive catalytic change, it’s not enough to invest in a few housing projects in deprived areas, you need to look across all the challenges in the housing market,” he says, explaining that one way to do this is by supporting SME house builders, for whom Scotland has historically been a less attractive proposition than London or the South-East of England owing to smaller ticket sizes and higher costs of building in largely rural areas.
“The work we have done to understand the market means we can more accurately report on the impact we’re generating. The indicators here are not just about the number of homes built. It’s about demonstrating how we are stimulating change in the housing market because we understood the problem more deeply,” he adds.
Investment portfolio
SNIB, which predominantly targets SMEs with investments above £1m, has invested into 39 companies to date. It has also invested into five funds, including; Social and Sustainable Housing (SASH), Gresham House Forestry Fund, Thriving Investments MMR Fund, Par Equity, and Iona Wind Partnership.
Eligible investments have to be in businesses and projects either based in Scotland or seeking to move to Scotland, or into funds addressing Scottish challenges.
“Scotland is quite attractive for startups but when companies reach a certain size, they tend to move to London, New York or another big city to secure more capital. What we’re trying to do is to anchor these investments here,” says MacDonald.
XLCC, which manufactures and lays high-voltage subsea cables for cross-border electricity transmission, grid reinforcement, and offshore wind farm export, is one British company which has expanded its operations into Scotland thanks to a £20m investment in 2024 from SNIB. MacDonald says the investment “ticked a number of boxes”.
“It’s critical to the development of offshore wind, the company is also siting their manufacturing facility and creating 900 jobs in Hunterston in North Ayrshire, which is a comparatively deprived part of Scotland, and it has a deal with the local college to train people up for apprenticeships,” he explains.
The bank also dipped below its investment threshold, investing £730,000 into DITT Construction for a housing project in the Shetland islands last year.
“There aren’t many investments in these small communities above £1m but we’re here for the whole of Scotland and all our communities, so we made an exception,” he adds.
The bank’s most recent investment of £1.5m in April of this year into NCIMB, a biotechnology company, is an example of its focus on scaling up innovation and technology.
Impact ecosystem
“We’re not trying to compete with the private market,” says MacDonald, explaining that in its role as an impact catalyst, SNIB aims to derisk investments and capitalise opportunities to attract private capital.
According to the bank’s latest impact report, for every £1m it has invested, its investees have received on average a further £1.9m from other sources, with a total of £696.5m invested from launch to the end of 2024 and an additional £1.3bn leveraged from third party investors over the same timeframe.
“A condition of any investment we make is that it has to have a minimum of one-to-one co-investment before it gets past our investment committees. We’re pretty well-placed to bring in money from elsewhere, we understand the Scottish economy well and know how to promote it.”
The bank has invested alongside VCs, private equity investors, as well as other public sector investors including the UK’s National Wealth Fund.
“There are a number of projects where it makes sense to pair up,” says MacDonald.
“There is also a lot of connectivity between sectors, especially in relation to the just transition in terms of grid infrastructure having to happen alongside investment in energy efficiency or housing to cater for particular jobs. We won’t achieve what we need to without coinvesting with others,” he adds.
